Sustainable procurement goes mainstream, influences IT buys
ESG considerations add a new dimension to IT purchasing criteria and, more broadly, could bridge the gap between business leaders and IT professionals.
Most IT organizations now include environmental, social and governance considerations when they issue requests for proposals and assess technology suppliers.
The prevalence of ESG as a purchasing criterion was among the key findings in an Enterprise Strategy Group survey of 400 IT professionals. Fifty-seven percent of respondents said they used ESG in RFPs and requests for information, while 37% said they included ESG at least once in such procurement documents, according to the study published this month.
As an evaluation factor, ESG emerged in the middle of the pack. An IT supplier's sustainability policies trailed product functionality, cost factors and security, but ranked ahead of a supplier's industry experience, a customer's previous experience with a supplier and the vendor's geographic location.
"[ESG] really is truly a new dimension of purchase criteria," said Jonathan Brown, market insight executive with Enterprise Strategy Group, which is a division of TechTarget.
"Based on the survey, we could see that not only is it a factor, but it's [also] a factor that sellers have been eliminated for. So, you can actually lose a deal as a seller because you're not up to snuff on your ESG compliance," he said.
The report revealed 85% of respondents have screened out potential suppliers or products on ESG concerns at least once.
For CIOs, the survey results suggest ESG is becoming mainstream and will influence everything from procurement strategy to the sometimes contentious relationship between IT and business.
Potential for greenwashing?
While more organizations are using ESG as a factor for evaluating IT providers, their ability to assess suppliers' ESG programs "are not yet mature," according to the Enterprise Strategy Group report. "There was not a consensus among buyers regarding what they found to be the most useful information, what was acceptable as proof, and which standards they trust and leverage," the report stated.
At the same time, however, 95% of IT professionals said they believe their companies would pay an average premium of around 6% for products or services from an ESG-committed supplier. How long buyers will be willing to pay more for ESG without better proof of the efficacy of products and services is uncertain.
For now, IT buyers and vendors are in a "honeymoon phase" regarding the acceptance of sustainability assertions, according to Brown, who co-authored the report.
"We're not at the stage yet where we're skeptical of vendor claims," he said. "Two years from now, we might be a little more cynical and say, 'Ah, you know what, these people have been greenwashing and counting for carbon credits for things they didn't actually do."
Fostering business-IT alignment
Business-IT alignment, a long-pursued but elusive enterprise objective, could benefit from ESG. Enterprise Strategy Group survey respondents ranked IT as the corporate department most affected by sustainability initiatives. Within IT, respondents rated infrastructure and operations as the top areas of emphasis. ESG concerns are shared on the business side. The study found 97% of organizations with established ESG programs said sustainability concerns affect their strategic planning.
"There are two groups that are primarily affected here: It's IT leadership and executive leadership," Brown said. "And it's rare that these people are on the same page about anything. We were really intrigued by the fact that these people have the same goals."
Jonathan BrownMarket insight executive, Enterprise Strategy Group
The survey's business-IT alignment takeaway tracks with other research findings.
A 2021 PwC study, for example, concluded that ESG programs generate changes across enterprises, from strategic decision-making to reporting. Those business changes flow into digitalization efforts. "ESG transformation isn't distinct from, but rather should inform and extend, digital transformation efforts that have been a critical area of focus for many companies in recent years," PwC noted.
CIO role in ESG
Brown suggested ESG could become an unexpected backdoor for "turning IT into what we've always wanted it to be -- 100% aligned with our business objectives. That's something that we're going to watch, from the CIO perspective."
Jeff Schumacher is founder and CEO of NAX Group, a Manhattan Beach, Calif., company that works with CIOs to create offerings that blend Web3 technologies and ESG with the goal of making ESG commercially viable for organizations.
"It has become clear that CIOs will need to take on a greater role in ensuring their IT infrastructure and operations can support their [companies'] ESG goals," he said.
ESG will expand a CIO's list of responsibilities at the intersection of IT and business, agreed T.J. Faze, head of ESG strategy and engagement at Vertiv, a digital infrastructure company based in Columbus, Ohio.
"ESG is an additional business need that is going to require its own systems, and when it comes to the architecture of those systems, every part of the business will have responsibilities," he said.
For CIOs, ESG is a new platform that must be integrated into an ecosystem that includes ERP, IT capital planning and people management systems, according to Faze.
"[ESG] expands the CIO's role. But it's expanding because it's a business need and should be integrated into all aspects of a business," he added.
Wide adoption with room for improvement
The Enterprise Strategy Group report indicates widespread deployment of ESG initiatives. Seventy-one percent of the IT professionals polled said their organizations have mature or at least partially implemented ESG programs. Brown said he expected to see high adoption in industry sectors such as manufacturing or regions such as Western Europe. But the breadth of ESG support was unexpected, he noted.
"We were surprised, in the aggregate, that seven out of 10 organizations had programs in place," Brown said.
Against that backdrop, organizations give more weight to environmental and governance factors compared with social. Survey respondents were asked to rate the importance of each aspect of ESG in their purchasing decisions, across several types of IT suppliers. The results showed that IT professionals emphasize environmental considerations when evaluating end-user device suppliers, data center hardware companies and cloud service providers. Governance, meanwhile, was the top consideration for organizations assessing software and services companies.
Sustainable procurement in government
The multi-billion-dollar federal IT sector is one area where CIOs and IT suppliers could see ESG procurement making inroads. The Biden administration has made ESG, climate resiliency, environmental justice, and procurement equity key elements of its management agenda, said Deniece Peterson, senior director of federal market analysis at Deltek, a Herndon, Va., software company that studies government contracting trends.
"IT contractors are directly impacted by the administration's agenda for driving sustainability, net-zero emissions goals and energy-efficiency objectives," she said.
She pointed to a White House Executive Order requiring the "social cost of greenhouse gas emissions" to be considered in government procurement decisions. The process of amending the Federal Acquisition Regulation, which governs federal procurement, to reflect that mandate is underway, with an internal assessment of the proposed rule expected in Nov. 2022.
The social aspect, which includes diversity, equity and inclusion, didn't top any of the product and service categories as an evaluation factor, the survey showed.
"It's nobody's number one thing, and that's an important takeaway here," Brown said. "It's sort of like it's become capitalism-relevant to care about the environment -- social, not yet. We've still got room to grow."